There’s a widespread view in the US that Chinese companies are using the de minimus exception to circumvent the wall of tariffs on more than $US360 billion of Chinese imports that Donald Trump erected and Joe Biden has maintained and even strengthened.

Those tariffs imposed a 25 per cent duty on about $US250 billion of China’s exports to the US and a 7.5 per cent rate on a further $US112 billion. Wholesale apparel imports, for instance, attract the 25 per cent duty. The same items, if packaged in lots of less than $US800, attract no duty.

The success of Chinese e-commerce companies – primarily Shein and Temu, which, according to a congressional committee report last year, together accounted for more than 30 per cent of the more than 1 billion small package imports into the US – has driven an explosion in the number of these parcels being sent to the US.

While the US, Europe and other nations are highly focused on China’s plans to dominate high-value markets such as those for electric vehicles, solar panels, wind turbines, lithium batteries and semiconductors, where substantial state assistance has created significant excess manufacturing capacity, weak domestic demand has also led to excess capacity in the factories that produce consumer goods and producer prices that have been sliding for the best part of 18 months.

That has in turn led to China’s export volumes of goods rising rapidly even as the prices of those goods have fallen, creating an opportunity that Shein and Temu (the most downloaded app from Apple’s store in the US last year) have been exploiting by leveraging their sophisticated supply chains to create “direct-to-consumer” business models. Both companies, incidentally, deny using forced labour.

China remains the world’s largest and lowest-cost platform for manufactured goods, and the weak domestic demand and excess capacity in that manufacturing base threaten another flood of the cheap products that wiped out large swathes of Western manufacturing industry in the 1990s and beyond, even as the country’s leadership sets its eyes on higher-value and more strategic sectors.

The “loophole” in America’s customs laws – in effect, small parcel exporters have created their own free trade agreements with the US – has been the subject of intensifying concern for US lawmakers ever since the Trump presidency as the volumes of small parcels have risen at a dizzying rate.

Last financial year (the year to September in the US), there were 1.05 billion tax-free shipments to the US, predominantly from China. This was a more than 50 per cent increase from 2022 levels and twice the volume of those shipped in 2019, before the pandemic.

From China’s perspective, last year’s exports grew only 0.6 per cent from the previous year’s. Export revenue from small e-commerce parcels, however, grew almost 20 per cent to more than $US250 billion, accounting for nearly 8 per cent of total exports. It’s a big and rapidly growing export sector.

The potential US responses to the surge in small parcel imports now being canvassed in Congress range from applying the same duty rates that apply within the exporting economy – in China’s case the equivalent of about $US7 per parcel – to a complete ban on low-value Chinese imports.

There are, of course, powerful groups arguing against any change – some Republicans with strong free-trade views, the big logistics companies like UPS and FedEx and those who see the de minimus regime as delivering low prices to American consumers and lowering inflation in the process – but the Homeland Security action presages a wider effort to throttle the flow of duty-free imports.

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(In Australia, from July 1, nearly 500 “nuisance tariffs” on items ranging from toothbrushes to fridges to apparel will be abolished because they raise little revenue and are costly to administer and comply with – the same rationale that underpins America’s de minimus exception.)

Yellen’s comments on trade while in China have been focused on the current flash points of state subsidies and other financial assistance to electric vehicle and solar panel manufacturers. The Treasury secretary says these have created capacity significantly exceeding China’s domestic demand, which could, in turn, lead to large volumes of exports at depressed prices that would undercut manufacturers elsewhere and lead to over-concentration of supply chains.

“China is too large to export its way to rapid growth,” she said.

She might have been thinking about EVs and solar panels, but back home, her own administration, lawmakers in Congress, retails and manufacturers of the wildly popular goods that e-commerce firms like Shein and Temu are selling are also focused on the much smaller, far lower-value fry flooding into the US via the de minimus exception.

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